M3 is a measure of the money supply that includes all of the components of M2 (currency in circulation, demand deposits, and other highly liquid assets), as well as certain less liquid or less widely held financial assets such as large-denomination time deposits, institutional money market funds, and repurchase agreements.
M3 provides a broader and more comprehensive view of the money supply than M2. However, it is also a less precise measure of the money supply because it includes assets that are not widely used as a medium of exchange. M3 is no longer officially reported by the Federal Reserve, as they discontinued its publication in March 2006 due to concerns over its relevance to monetary policy.
The Federal Reserve discontinued reporting M3 in 2006 due to concerns about the cost of collecting the data and the fact that M2 was considered a more accurate indicator of the money supply. Despite this, some economists and investors continue to track M3, as they believe it provides a more complete picture of the money supply and the potential for inflation.
It's worth noting that the various measures of the money supply, including M3, are important for policymakers and economists in understanding and managing the economy. They help to monitor changes in the supply of money and credit, which can impact interest rates, inflation, and economic growth.
M3 includes all the components of M2, such as currency, checking deposits, savings deposits, and money market funds, but it also includes certain large time deposits, repurchase agreements, and institutional money market funds.
Repurchase agreements, also known as repos, involve the sale of securities with an agreement to buy them back at a later date. They are commonly used by banks and other financial institutions to manage short-term cash needs. Institutional money market funds are similar to money market funds but are designed for large institutional investors rather than individual investors.
The inclusion of these additional components in M3 makes it a broader measure of the money supply than M2, and some economists argue that it provides a more accurate picture of the amount of money available in the economy for spending and investment. However, as mentioned earlier, the Federal Reserve no longer reports M3, and M2 is considered the most widely used and reliable measure of the money supply.